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US sinking deeper into recession, Fed tries spending another $1.5Trillion

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posted on Mar, 19 2009 @ 03:03 AM
Those in the know seem to be very bearish on the economy if you read between the lines. All those Trillions printed so far seems only to have filled the chasms of loss - it wasn't enough to make it onto the street and cause inflation anywhere near the horizon. Also this is the first time they're mentioning employment in 2009 reaching 10%. They are quietly panic'd about entering a depression. Might be the peak of the current bear market / suckers rally, so those who short should consider that now.

Fed launches bold $1.2T effort to revive economy
Wednesday March 18, 8:01 pm ET
By Jeannine Aversa, AP Economics Writer
Fed launches $1.2 trillion effort to revive economy; keeps key rate at record low

WASHINGTON (AP) -- With the country sinking deeper into recession, the Federal Reserve launched a bold $1.2 trillion effort Wednesday to lower rates on mortgages and other consumer debt, spur spending and revive the economy. To do so, the Fed will spend up to $300 billion to buy long-term government bonds and an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.

Fed Chairman Ben Bernanke and his colleagues wrapped a two-day meeting by leaving a key short-term bank lending rate at a record low of between zero and 0.25 percent. Economists predict the Fed will hold the rate in that zone for the rest of this year and for most -- if not all -- of next year.

The decision to hold rates near zero was widely expected. But the Fed's plan to buy government bonds and the sheer amount -- $1.2 trillion -- of the extra money to be pumped into the U.S. economy was a surprise.

"The Fed is clearly ready, willing and able to be the ATM for the credit markets," said Terry Connelly, dean of Golden Gate University's Ageno School of Business in San Francisco.

Wall Street was buoyed. The Dow Jones industrial average, which had been down earlier in the day, rose 90.88, or 1.2 percent, to 7,486.58. Broader indicators also gained.

And government bond prices soared. Heralding a coming drop in mortgage rates, the yield on the benchmark 10-year Treasury note dropped to 2.50 percent from 3.01 percent -- the biggest daily drop in percentage points since 1981.

The dollar, meanwhile, fell against other major currencies. In part, that signaled concern that the Fed's intervention might spur inflation over the long run.

If the credit and financial markets can be stabilized, the recession could end this year, setting the stage for a recovery next year, Bernanke has said in recent weeks. The Fed chief and his colleagues again pledged to use all available tools to make that happen, and economists expect further steps in the months ahead.

Since the Fed last met in late January, "the economy continues to contract," Fed policymakers observed in a statement they issued Wednesday.

"Job losses, declining equity and housing wealth and tight credit conditions have weighed on consumer sentiment and spending," they said.

The Fed's announcement that it will spend up to $300 billion over the next six months to buy long-term government bonds was something that in January it had hinted it would do. But some officials had seemed to back off from the idea in recent weeks.

Such action is designed to boost Treasury prices and drive down their rates, as it did Wednesday. Rates on other kinds of debt are likely to fall as well.

"This is going to help everybody," said Sung Won Sohn, economist at the Martin Smith School of Business at California State University. "This might help the Fed put Humpty Dumpty back together again."

The last time the Fed set out to influence long-term interest rates was during the 1960s.

The Fed's decision to buy an additional $750 billion in mortgage-backed securities guaranteed by Fannie and Freddie comes on top of $500 billion in such securities it's already buying. It also will double its purchases of Fannie and Freddie debt to $200 billion.


The Fed has said it's mindful of the risks of pumping more money into the economy, bailing out financial institutions and leaving a key rate near zero for too long. There's the potential to plant the seeds for higher inflation, put ever-more taxpayer money at risk and encourage "moral hazard." That's when companies make high-stakes gambles knowing the government stands ready to rescue them.

Across the Atlantic, the Bank of England last week began buying government bonds from financial institutions as it turned to new ways to help revive Britain's moribund economy. The Bank of England, like the Fed, already had lowered its key interest rate to a record low of 0.5 percent.

Finance leaders from top economies have discussed coordinating actions from their governments and central banks to provide a more potent punch against the global financial crisis.

The Fed is taking the new steps as the U.S. economy sinks deeper into recession. Businesses are facing weaker sales prospects as customers in the United States and abroad cut back, the policymakers said.

Still, the Fed said it hoped its actions, the government's bank rescue effort and President Barack Obama's $787 billion stimulus of increased government spending and tax cuts eventually will help revive the economy.

"Although the near-term economic outlook is weak, the committee anticipates that policy actions .... will contribute to a gradual resumption of sustainable economic growth," the Fed said.

But even in this best-case scenario, the nation's unemployment rate -- now at quarter-century peak of 8.1 percent -- will keep climbing. Some economists think it will hit 10 percent by the end of this year.

...(more at link)

[edit on 19-3-2009 by Dbriefed]

posted on Mar, 20 2009 @ 01:53 AM
[edit on 20-3-2009 by Dbriefed]

posted on Mar, 20 2009 @ 02:42 AM
Thier only investing within governemnt or one has money to flautn about anymore, along with the layoffs. Most people work in business, and that means corporations. SO, thierfore, corporations layoff, or have reduced the salarys dramaticaly of the lucky enough ones to keep thier current positons, the public isnt spending money on a gran scale! Dont they effin get it? This is like life suuport for themselves..thats all this sems like, and the hell with the public.

posted on Mar, 20 2009 @ 02:48 AM
This is going to be one endless game of running a circle with themselves, jsut like a dog chasing its own tail in a circle, it aint gunan get it.
ALl their gunna do, is keep that money mint machine truned on for god knows how long, prob the next 8 years? And i wonder, what will happen then? with all that excess money they printed out, to stabilize the system..inflation comes to mind! So either way, were looking at being screwed financialy. Places like AIG, franny n freddie, and the like will continue to get multi million $ or billion$ bonus's adn aprty it all out the sewer line, as we suffer. I say, stop investing and buying with em....let it all fail. I the end, they wont have anyting left to save, and their precious money they stole wont be no good at taht point anyways.

posted on Mar, 20 2009 @ 10:43 AM
I'm kind of surprised that $1.5 T no longer raises much interest. Much bigger than the stimulus packages discussed to date.

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